An Optimal Formation of Electricity Prices, etc.,through Total Surplus Based on Average Cost:

Abstract

 The Tohoku-Pacific Ocean Earthquake and its tsunami wave disabled the Tokyo Electric Power Company (TEPCO)’s nuclear power plants on March 11 in 2011, causing one of the worst crises in human history. Besides, the Fukushima power plants made more than 100,000 residents nuclear refugees. But, from then till now, the refugees have not been yet fully compensated by the TEPCO although it has marked up electricity prices or power rates more than several times just like as the TEPCO wants to keep its officers’ earnings at still high levels.

 It is well known as the Ramsey-Boiteux’s price formation for any natural monopoly (decreasing average cost) that this kind of price markup, say β_i, should be proportional (∝) to the reciprocal of the price elasticity of demand : Namely, the less elastic demand; the higher the price markup like the above daily necessity. It may be worth noting here that their pricing reciprocal elasticity rule like consists of maximizing the total surplus made from the difference of demand and supply functions under the condition of non-negative profit or zero profit.

 Instead of the maximization problem for the pricing rule such as , however, we would like to employ another one for an optimal price formation to the fully distributed cost method under the condition of positive profit, by maximizing the total surplus made from the difference between demand and average cost functions. In addition, we would like to show here not only a few of new rules for marginal sacrifice corresponding to our total surplus but also a closed-form solution, both of which no one has yet provided in the literature.